EXPOReal Special Report: Russia Tackling Housing Issue, Looking at Indian Project to Adapt PPPs

By Alex Girda, Associate Editor

Munich, Germany—As our coverage of EXPO Real 2013, the 16^th edition of the International Trade Fair for Property and Investment began, there was one item that immediately caught our attention. On the first day of the event held at the Messe Munchen International, one of the more intriguing conferences was the one organized by the Russian National Agency of Development of Rent Housing Foundation.

The panel consisted of members of the Russian nation’s legislative body, as well as foreign partners and professionals currently promoting development opportunities in the country. The first order of business was acknowledging the particularities that create the unique nature of the Russian development scene, the varied terrain and climate found within its borders, but also its shortcomings. As pointed out by the speakers, this diversity has led to the necessity of a longer period of adaptation when it comes to the Russian Federation’s compliance with international law, the state having only gained membership of the WTO during last year. Where European legislation is concerned, development processes will need time while the country fights to get as many infrastructure programs going in its most badly underdeveloped regions as it can.

Infrastructure was the main point emphasized by both Mikhail Grin, director general of the Russian National agency of development of rent housing foundation, and Ivan Novitsky, a member of the Russian Duma, the country’s legislative body. The speakers noted that although there may be a problem of image regarding the Russian Federation’s possibilities in terms of development companies and architecture firms, local entities have been in constant contact with the largest players in the world for over 20 years now, and the benefits of those links are already visible. The focus then shifted on PPPs and their efficiency in an emerging market where development projects in the rental sector are next to inexistent. Farook Mahmood, the chairman and managing director of Silverline Group, compared the case currently observed in the Russian Federation with some of the issues India has seen over the years.

The speaker pointed out the necessity of creating a viable model for residential development in emerging markets such as India and presented a solution called BOT, which stands for “build, operate & transfer,” This is a form of project financing where private companies undertake the development and operation of a facility, duties that would normally be handled by the state. The termination of the involvement of the private company in the venture would take place after a previously agreed upon timeframe, usually between 25 and 40 years.

The BOT model calls for a third party—in this case the public administration—to hand over design and construction duties to a private company, after which the asset would remain under that company’s management for a certain period of time. In a BOT venture, the private entity takes upon itself all of the aspects of the development operation, including any risks involved in the process. The Build Operate and Transfer model is an evolved form of Public Private Partnership that could be considered as being better suited for emerging nations, due to its larger state component, as the local authorities would eventually take over full use of the developed property.

There were those who voiced their concerns regarding the lack of concrete data when discussing the application of such a model to Moscow’s rental housing market, but the representatives noted that such projects are so scarce at the moment, that the figures would be inconclusive. The lack of rental apartments in a city the size of Moscow, that may soon face overpopulation, could be tackled using the BOT framework, as the country adapts to the norms of international law, while simultaneously attempting to comply to the demands of a growing sector for the major European markets, where ownership is steadily decreasing.